Tuesday, March 13, 2012

BRICs, Part II: Brazil

From the CIA World Fact Book:
Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil's economy outweighs that of all other South American countries, and Brazil is expanding its presence in world markets. Since 2003, Brazil has steadily improved its macroeconomic stability, building up foreign reserves, and reducing its debt profile by shifting its debt burden toward real denominated and domestically held instruments. In 2008, Brazil became a net external creditor and two ratings agencies awarded investment grade status to its debt. After record growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in September 2008. Brazil experienced two quarters of recession, as global demand for Brazil's commodity-based exports dwindled and external credit dried up. However, Brazil was one of the first emerging markets to begin a recovery. In 2010 consumer and investor confidence revived and GDP growth reached 7.5%, the highest growth rate in the past 25 years. Brazil has since then experienced an economic slowdown, driven primarily by a faltering industrial sector and Brazil's fast-rising currency. Brazil's high interest rates make it an attractive destination for foreign investors. Large capital inflows over the past several years have contributed to the rapid appreciation of its currency and led the government to raise taxes on some foreign investments. President Dilma ROUSSEFF has pledged to retain the previous administration's commitment to inflation targeting by the central bank, a floating exchange rate, and fiscal restraint.

Here's how their economy breaks down:

agriculture: 20%
industry: 14%
services: 66% (2003 est.)

According to the same source, Brazil is the 24th largest exporter and the ninth largest oil exporter.  Their primary agricultural products are: coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef.

The Brazilian economy was stagnant at the end of the 1990s and early 2000s.  However, starting in 2004, we see the country grow at incredibly strong rates, with the recession of 2010 being the only thing holding back the growth.  

While the economy came out of the recession printing very strong growth, notice that the rate of growth has been steadily decreasing for the last two years.  

Brazilian industrial production's YOY increase is now negative, indicating a clearly slowing economy.

Brazil's retail sales numbers are actually pretty good, indicating the Brazilian consumer is alive and well.

The above charts are obviously inter-related.  Brazilian inflation peaked at a little under 7.5% late last year, but has been coming down since then.  As a result, Brazil has been able to lower their benchmark interest rate -- which is very high by world standards.

Over the last few years, the unemployment rate has been dropping.

The inflation/interest rate charts are very important, because they show the big problem Brazil is facing right now: rising inflation has kept rates high which is having an obviously negative impact on the economy.